jueves, 16 de agosto de 2012

Orimulsion might be resurrected by the new government

I am no expert
in Orimulsion but I see that there is a renewed interest in this product.
During the last few years I have put together some ideas on this matter
obtained from the real experts. I exchanged messages with my close
friend Gustavo Inciarte, who died a
few years ago, with Carlos Borregales, former president of BITOR and
researched articles by Jaime Requena, petroleum engineers Saul Guerrero,
Leslie Jones Parra, Emilio Abreu, Manuel Urbano, Luis Montefusco and Luis Gil,
Chemical engineer Manuel Pulido and a press release by Gente del Petroleo. I
have read what Bernard Mommer and engineers Hebe Vissuri and Magdalena Ramirez wrote on
Interciencias and some news from www.petroleumworld.com
on the legal action of New Brunswick, Canada, against PDVSA. Based on this material I put this note
together:

1.In 1976 a group of members of PDVSA’s Board
met to discuss the issue of the Faja del Orinoco and how to develop these
resources of heavy oil, extra heavy oil and bitumen. We came to the conclusion
that INTEVEP should dedicate special efforts to find alternatives to market
these resources;

2.The work that led to the
commercial marketing of Orimulsion was long and complex, as it is usually the
case in research efforts involving multidisciplinary cooperation. At all
times PDVSA supported INTEVEP in these efforts. According engineer Hebe
Vessuri research started looking for a manner to emulsify the hydrocarbons to
allow for its transport. Once these technical problems were surmountedthe marketing teams started to look for
clients and several agreements were signed with companies such as British Petroleum
and Mitsubishi. A company, BITOR, was created to market the product
internationally.

3.What is Orimulsion?

The product is essentially an emulsion of 70% bitumen with 30% water
with the addition of a surfactant which permits the mixture to be transported
without a separation of its components. The product became protected by
patents belonging to INTEVEP.

4.Premises leading to Orimulsion

The first premise was that the significant volumes of the resource should
be developed in commercial ways. The amounts of oil and bitumen in situ were
estimated at some 1.3 trillion barrels and even assuming a 10% of recovery
the volumes exceeded 130 billion barrels. Obviously something had to be done.

The second premise was there was no upgrading technology involving
catalytic processes then available. Alternatives had to be found.

The third premise was that the product would not be able to compete
with more conventional hydrocarbons but it could become a competitor of coal,
since it had a greater calorific value and was less contaminant. As such, it
would target the electrical generation markets in Europe, USA and Asia.

The fourth premise, according Carlos Borregales via Internet, was that
bitumen could be excluded from the OPEC quota and to obtain import rates that
would make it competitive in international markets. This was accomplished
through the efforts of the Instituto de Comercio Exterior and the Ministry of
Foreign Relations.

The fifth premise was to demonstrate that Orimulsion was not a threat
to the environment. This was only partly successful since environmentalist organizations
in USA and England, supported by the Coal lobby, closed the doors to the
product in those countries.

The sixth premise was that Orimulsion should be treated in a different fiscal
manner by the government. This included a lower royalty and an incometax rate of 34%. The national congress
approved this income tax rate and, temporarily, the lower royalty payments.
One of the defenders of this special treatment for Orimulsion was…. Ali
Rodriguez!

5.Economic Aspects of Orimulsion.

According to BITOR Orimulsion is profitable. Return on Investment,
Internal Recovery Rates and other parameters were positive. It is true,
however, that profit per barrel is lower than other alternatives, which would
make Orimulsion a lower commercial priority. Although a cheaper product, both
in price and in cost, the significant volumes of the hydrocarbons existing in
the Orinoco area, made it a feasible candidate for development. There are
markets and markets and I always come back to the example of Johnny Walker
Black Label and Johnny Walker Red Label. Both are produced and marketed.

6.The opinion of Jaime Requena

In Interciencia, researcher Jaime Requena, a member of the Venezuelan Academy of
Physical, Mathematical and Natural Sciences expressed his opinion that Orimulsion
was a way to diversify markets. He said that optimum business strategy calls
for a basket of options that would allow for diversification to a wider
market. Requena pointed out that a mixture of the extra heavy with 30 degrees
API Mesa crude did not seem to be a better alternative.

7.Then Minister Ali Rodriguez
suspended Orimulsion because “it competed with conventional hydrocarbons and did not give fiscal benefits to the state
nor profits to PDVSA”. He ordered to replace Orimulsion with a blend of extra
heavy oil and lighter oils. This was a measure adopted on the basis of the
recommendations of adviser Bernard Mommer. He claimed Orimulsion did not pay
royalties or taxes as the blends would and has become a competitor of residual
fuel oil. Mommer claimed that there was no bitumen in the Orinoco region. However,
PDVSA engineers who were dismissed by the “new” PDVSA reminded him that hydrocarbons
with dynamic viscosities equal or higher than 10000 milipascals at normal
temperature and pressure conditions and free gas should be defined as such. This
was further corroborated by the work of Mauricio Tedeschi presented to the
XIII World petroleum Congress, Buenos Aires, 1991.

Mommer also claimed that INTEVEP had to develop special cleaning
techniques for combustion gases derived of the production of Orimulsion. This
was not correct, PDVSA engineers countered. This cleaning is done with the help of a
well-known process called Fluid Gas Desulphurization, exiting since the 1970’s.
Mommer also claimed that Orimulsion only received $6.60 per barrel in 2002.
This was also incorrect, as all contracts signed with Singapore, Italy,
Canada, South Korea and Guatemala were for $10 a barrel. Actually, when the
supply of Orimulsion was cancelled by Rodriguez, the Canadian client sued
PDVSA.

Mommer claimed that Orimulsion competed against residual fuel oil. In
truth, Orimulsion only competes with
coal and with natural gas. Currently natural gas would be its formidable
competitor in USA, due to the low price of this hydrocarbon and its better environmental
profile.

8.In summary: To have cancelled Orimulsion was not a sound
strategy and obeyed mostly to ideological reasons. Orimulsion is not a conventional
member of the Venezuelan petroleum basket. As fuel for electrical generation it
cannot pay a normal royalty. PDVSA engineers, no longer with the company,
have observed that Merey crude oil cannot be produced above OPEC quota, so that there is no possibility of unlimited blending with heavier oils and bitumen, but
that Orimulsion practically has no physical limit when viewed against the significant amounts of
bitumen present in the Orinoco region. Foreign investors were readily available
to develop Orimulsion production units without PDVSA having to invest
national money. Orimulsion is a niche, not a competitor for other Venezuelan hydrocarbon
products.

9.What is the real reason for
closing the door on Orimulsion?

It seems to be political. As the regime has generally sold the idea that it has the largest proven
oil reserves in the world, which is a technically wrong claim, it also needed
to say that there is nobitumen in the
Orinoco region, since this bitumen, they say, is ‘also oil” and, as such, contributes to
their claim of having the “largest” proven oil reserves in the world.

307 comentarios:

The basic argument against Orimulsion is to do with supplier diversity. Customers for it are power plants who do not and should not want to be locked into a product supplied by a single vendor. A preferred approach would be for the energy consumer to mitigate risk by promoting diversity in supplier base. In the case of Orimulsion, the power plant has to spend money to adapt the plant to use the new fuel making the use of it even more risky.

Given our track record of instability in Venezuela, I think even a new PDVSA would have a hard time convincing a prospective customer to adopt the new fuel. A way to deal with this issue is for PDVSA to consider licensing the patent portfolio as that might be a good business strategy: PDVSA might get more customers *and* also derive licensing revenue.